A better way to run a railroad

HISTORY will judge Richard Bowker more kindly than his contemporaries do. Today is his last day as head of the Strategic Rail Authority, the body that is the major casualty of the latest Governmental review of the rail industry, and while there were certainly some misjudgments during his time in office, he leaves the rail industry in much better shape than when he moved into the job three years ago.

It is fitting, perhaps, that his departure coincides almost to the day with the opening of the upgraded West Coast Main Line because it was Bowker more than anyone who reasserted control over this and other major infrastructure projects so that they could be driven forward to completion.

He also sorted out the fiasco on lines south of London where trains that required more electricity than the system could supply had been bought.

But his long-term legacy is that he managed to change the rail franchise model so that the City began to see there was some point in companies winning rail franchises and started to react favourably when they did.

That was a turning point because it marked the re-engagement of private finance with the rail industry after the Railtrack debacle. Much of the Government's future plans for tapping private-sector money depend on that rebuilding of trust achieved by Bowker.

Finally, and also in the list of unsung achievements, Bowker did much to link what he hoped to do from the centre with the aspirations of the regions.

Though it seems incredible, when he took over, areas outside London would develop regional transport policies without even thinking to contact the SRA, whose job it was to decide on rail priorities. It is now a lot more professional and sensible.

So where did it all go wrong? Well, Bowker's predecessor, the late Sir Alastair Morton, often said that the Department of Transport had never wanted to give up control of the railways and were determined at best to get it back and at worst to stop anyone else exercising proper control.

One suspects that though relations were better with Bowker, the underlying principle still held. Government minister Alistair Darling's panicky decision to launch a rail review gave the civil servants their opportunity to go for control, and they took it.

Amvescap irony

IT IS interesting that the day fund management group Amvescap reached its settlement over market timing abuses which disadvantaged private clients in its mutual funds, an American financial market research centre produced figures showing the average annual turnover of all US mutual funds had risen to 118% - which means on average a share is held for just 10 months.

Research group Bogle has been compiling these data for more than 50 years. Indeed, it can tell us that in 1953 a share was held in a mutual fund for seven years on average.

The other way to look at this is to say that turnover ran at abut 13% 50 years ago, did not rise above 50% until 1980 and has been more than 100% since 2000. Thus it is the norm that a US unit trust replaces its entire portfolio every year.

Given the cost of dealing charges and the low level of returns in the market, it would be astonishing if any of these funds ever made much money for their clients - and that, of course, is what you find.

A recent study by Morningstar, another research group, whose main business is advising clients on choice of funds and fund managers, found that six of the 10 biggest actively managed funds in the US would have achieved better returns

if they had not bought or sold any holdings in the past few years. One of the best known, Fidelity's Magellan Fund, lost an average of 5.4% a year from mid-1999 to mid-2004, over which period investors were charged $2bn in fees. If the managers had left the portfolio untouched it would have lost only 2% a year.

Morgan Stanley analyst Huw van Steenis pointed out today that Morningstar also plans to launch a fiduciary rating for funds, ranking them from A to F in terms of corporate governance. That is bad news for Amvescap because initially it is unlikely to get the highest score. Justifiably or not, the scorers will play safe, marking it down to cover their backs. That in turn gives the consulting actuaries who advise pension funds an excuse to keep it off the buy lists, so covering their own backs.

If that happens, it will no doubt leave Amvescap pondering the irony - and indeed the injustice - that it gets marked down for an isolated problem of rogue traders, now dealt with, while managers that continue to do far more damage to their clients' funds through excessive buying and selling get a clean bill of health.